FDIC Report: Mobile Payments Could Threaten Banks’ Security, Market Share (Dec. 18, 2012)
Dec. 18, 2012
Mobile payments could present serious security and competitive threats to financial institutions and other established payments industry players, according to a new FDIC report. In the latest edition of its semi-annual publication “Supervisory Insights,” a team of senior FDIC researchers explained that if consumers adopt mobile payments widely, nonbank players with little financial experience could add risk by injecting themselves into the banking ecosystem and financial institutions “may lose payments-system market share,” the researchers warned.
Mobile payments present “the same type of risks” to financial institutions as any other types of transactions and are subject to the Bank Secrecy Act, anti-money laundering compliance, fraud, credit and liquidity issues, as well as operations, IT and reputational risks. “Making matters more challenging is that much of the innovation in the mobile payments marketplace is driven by entrepreneurial companies that may not be familiar with supervisory expectations that apply to banks and their service providers,” the researchers wrote. Nonbank mobile payments providers may begin to encroach on existing financial service industry players’ market share and “alter” bank-customer relationships, the report said. As new and nonbank companies get involved with mobile payments and introduce ways to streamline processes and reduce costs, banks “could increasingly find themselves displaced by nonbanks in the mobile payments marketplace,” the researchers wrote. “Nowhere is this more evident than in the payment card acquiring business where it is not unusual to have five or six banks involved in a single payment.” PayPal, for instance, assumes “at least three” of the roles banks traditionally have handled, according to the researchers.
The exact path mobile payments will take is not yet clear, according to the researchers. But “the majority of industry observers predict a three-to-five year timeframe” for mobile payments to emerge, and that “a limited number of mobile payments models” ultimately will prevail. But “it is unlikely that any one technology will become dominant in the near term,” the team concluded.